IR35: Almost Due But Are You Prepared?

The impending intermediaries rules (also known as the off-payroll rules and IR35) affecting the private sector come into effect on 6th April 2020 - and they are already starting to bite. TV presenter Eamonn Holmes has just lost his appeal against an HMRC tax assessment against his company.

The tribunal found sufficient mutuality of obligation and “at least a sufficient framework of control” such as to effectively place Holmes as an employee. This was the case even though he enjoyed “considerable autonomy” in preparing for and presenting his show This Morning.

The stakes are high for all parties (a £250,000 bill in Holmes’ case). So if you have not already started, businesses must now begin to prepare for these changes ahead of April’s implementation.

Background

To recap, IR35 affects individuals who HMRC call “deemed employees” – that is, working as though they are full time employees but invoice end users for their services through an intermediary company (usually the individual’s personal service company). This is considered unfair as it means they pay less tax than if they were an employee.

To determine whether an individual is a deemed employee, HMRC will apply the employment test which involves looking at the actual, practical working practices and the relationship between the contractor and end user, rather than what the paperwork merely states.

The new rules will be applied retrospectively only in cases where HMRC suspects fraud or criminal activity. So pre-April tax mitigation will not be an issue but if, for instance, an arrangement is suspected as amounting to tax evasion, HMRC will undoubtedly investigate.

How you can prepare

If you are a large or medium sized end user company, it will be your responsibility to assess IR35 from April. Simply speaking, if you take the view that IR35 applies, you will be responsible for the payment of tax and national insurance contributions in the normal way through PAYE. Otherwise, it will be the individual contractor’s responsibility.

However, the rules are complex and you should take advice from specialist tax lawyers to ensure you understand how they apply in individual cases. The new chancellor Rishi Sunak has reportedly said HMRC will not be heavy handed in pushing the reforms for a year, which the business community will welcome.

In the meantime, businesses should consider taking specific steps including:

· Take a broad overview of your existing workforce, identifying any who are ostensibly self-employed or otherwise engaged through agencies or other intermediaries.

· Review your existing contractual relationships with those individuals, looking through any written terms and consider the nature of your relationships with them, including how much control you exert over them.

· Self-employed contractors who will be deemed employees for the purposes of IR35 should be given employment contracts to formalise the relationship and protect both parties.

· Where necessary, review existing working practices, implementing any changes you may consider necessary to ensure an individual will be not be a deemed employee.

· Where any third parties are involved, such as agencies, consider whether you should move any individuals onto a formal employment contract.

· At the recruitment stage, ensure your policies and procedures are transparent such that potential employees or others will understand the nature of their relationship with the business.

· Importantly, communicate with every individual affected. Discuss with them whether or not you think the rules apply to them and the implications for them and for you as employer.

Specialist advice

As with any tax legislation and rules, IR35 is not straightforward and you should consider whether you need to seek specialist advice from experienced tax solicitors.

If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you